Microcredit not working in China, new initiative needed

Without a microcredit of 20,000 yuan, Shan Xinhui, a laid-off woman, would not have been able to start her own business and today boast fixed assets worth more than two million yuan.

At the 2006 China Banking Association-Citigroup Micro-entrepreneurship Awards Ceremony, Shan, from the western city of Yan’an in Shannxi Province, showed her appreciation for the government and the microcredit fund that gave her the seed money.

But, in obtaining a microcredit, Shan was one of the lucky few.

Statistics shows that only 27.3 of China’s rural households have benefited from microcredits provided by rural credit cooperatives. The total value of microcredit loans distributed by over 100 microcredit institutions is merely one billion yuan.

Noted Chinese economist Mao Yushi said at the ceremony: “Although China’s government has achieved a great deal in poverty reduction, there has been no obvious progress in the operation of microcredits.”

“A lack of funding and the unclear legal status of microcredit institutions have caused a terrible bottleneck in Chinese microcredit,” said Du Xiaoshan, an expert from the Chinese Academy of Social Sciences.

“Poor business capacity, unproven operational models and a shortage of competent professionals are adding to the problems,” he said.

Du Xiaoshan told Xinhua that China’s finance industry has to get rid of some mistaken notions.

“In other countries, microcredit institutions keep providing new loans to people with good track records, but in China people can only get loans once,” he said.

“The poorest people have the best credit, because they know the value of borrowed money,” said Du.